Economics - Philippines: BSP door is opening for a rate cut

The central bank left its benchmark interest rate unchanged for a second straight policy meeting,while cutting inflation forecasts for 2019 and 2020. The central bank trimmed its inflation forecasts for 2019 to move closer to the mid-point of the 2% to 4% target range at 3.07% from a 3.18% estimate in December. The overnight reverse repurchase rate was held at 4.75%, a decision that fell in line with ours and consensus.

Unlike the Reserve Bank of India which reduced the repo rate by 25bps in the recent policy meeting, we expect BSP to most likely maintain the current 4.75% policy rate until 2Q2019. Any room for a rate cut can take place should the potential incoming data do provide the justification. Low inflation added with their mid-term election to be held in May plus should open the door for potential rate cut.

The Philippines central bank left its benchmark interest rate unchanged for a second straight policy meeting, while cutting inflation forecasts for 2019 and 2020. The central bank trimmed its inflation forecasts for 2019 to move closer to the mid-point of the 2% to 4% target range at 3.07% from a 3.18% estimate in December.

The overnight reverse repurchase rate was held at 4.75% by the Bangko Sentral ng Pilipinas (BSP), a decision that fell in line with ours and consensus. BSP was among the most aggressive interest-rate hikers in Asia in 2018, boosting its benchmark rate by 175 basis points, to curb inflation and bolster the currency. With the US Fed signaling it will pause its rate-hike cycle, it has provided more breathing space for the emerging markets across Asia’s central banks to dump their hawkish policy stances.

Unlike the Reserve Bank of India which reduced the repo rate by 25bps in the recent policy meeting, we expect BSP to most likely maintain the current 4.75% policy rate until 2Q2019. Any room for a rate cut can take place should the potential incoming data do provide the justification. Low inflation added with their mid-term election to be held in May plus should open the door for potential rate cut.